Can TU Make a Comeback, or…..Is It a Little Too Late?

The share price of Thai Union Group Public Company Limited (TU) has reached the point that gives worrisome to investors after a three-day-straight plummet since last Thursday for a total of ฿1.70/share or 12.59% to trade at ฿13.50/share.

It made investors thinking; what had gone wrong with the once popular and a recommended share?

 

The first negative factor that initiated the selloff was the dispute with the U.S. in the monopoly of trading tuna in which the US Department of Justice (DOJ) had ceased to summon other witnesses from Tri-Union Seafoods’ Chicken of the Sea International (COSI), TU’s subsidiary. The news was foreshadowed by investors that TU could be in deep trouble in the lawsuit.

However, TU’s share price has been falling way before that. The share price fell from ฿16.90/share on September 27, and from ฿19.30/share on July 26, which makes it evident that there are more factors that keep dragging TU down.

 

It is clear that TU got hit by the strong baht since 70-80% of its core earnings were from international sales. The baht rose 7-10% against the greenback, euro and pound in the third quarter of 2019, caused TU’s total sales to decline by 5.6% when compared to the same quarter last year.

The global economic slowdown had plunged TU even further when the demand from its main importers such as the U.S. and Europe declined, resulting in a significant fall of TU’s sales.

Which led to the estimation of a 16% decrease in profit from operation in 3Q19 when compared to the same quarter last year and a 9% decline when compared to the previous quarter this year.

 

Nevertheless, the margin is expected to increase to 16.6% this quarter from 15.7% in 3Q18 as tuna price maintains at the lower level by -17% YoY at $1,217/ton.

This could make TU’s bottom line to see growth for both YoY and QoQ if there are no extraordinary items such as an expense for the dispute and lawsuit.

 

Last but not least, it is the concern of TAS 32 regulation that could turn TU’s perpetual debenture not exceeding 6,000 million baht expecting to be sold on November 26-28 into debt in a blink of an eye. The only hope is that the effective date of TAS 32 will be postponed.

TU currently has a total of 94,103 million baht of debt, but if including the amount from this upcoming “debt”, TU’s debt could go up to 100,103 million baht.

 

The scrapping of Thai’s Generalized System of Preferences (GSP) by the U.S. last Friday after trading hours in Thailand could be the most recent negative signals to TU. Even though Mr. Thiraphong Chansiri, CEO of TU, had stated that there will be no material impact on its operations on this matter, TU’s share price still closed lower at ฿13.50/share, plunged ฿0.50/share or 3.57% with a trading value of 483 million baht.

For the bright side, the plummet of TU’s share price was better than ASIAN and CFRESH that plunged 7.78% and 8.67%, respectively.

 

In addition, when combines all these negative factors on TU, it appears that this could be the real reason for the plummet of TU’s share price.

What is important now is to regain investors’ confidence in the company and its business. Otherwise, it may be too late for a comeback.